Tax day!

I think pretty much everyone agrees that the American tax code is dysfunctional. It is enormous, over 67,000 pages and 3.7 million words long: literally beyond the capacity of any single individual to know or understand in its entirety. Its progressive features are weakened by its complexity and some loopholes, tax credits, etc. Plus, we pay entirely too much.

Everybody's got ideas about how to fix it. Here's mine!

1. If you are currently disabled such that you are unable to work, have no income beyond government relief in some form (Social Security and such), are currently in the military, or make less than $12,000 a year (a number than can change with inflation), you pay no taxes.

2. For everyone else, there's a formula.

a. For income between zero and X dollars, you pay .5%. So, let's say that in 2008, X = 48,000. If you made exactly $48,000 dollars last year, you pay $2,400.

b. For all income above X, you pay Y%. Let's say for 2008 Y=30, and you made $58,000. You'd pay 1% of that first $48,000 ($2,400) and then 30% of the next $10,000 ($3,000). So your total tax burden would be $5,400.

Simple! The most complicated part would be figuring out the value of items you received that act like income (like receiving stocks as a bonus, or using a company car). The entire thing could be done on a medium-sized postcard. It would be easy too to make it more progressive -- just add $Z. Anything more than three levels would be a bit too complex.

3. There is no withholding, so people recognize how much they are actually paying the federal government every year, and there are no tax credits or loopholes, because it's not our place to subsidize people for having kids, buying houses, getting married, buying a new car, going to school, etc etc.

4. This is the sole income tax that the federal government levies -- no business taxes to encourage people to put their money back into business (although any perks would qualify as income). No social security taxes, because if we're going to do wealth transfer we're going to be honest about it.

5. Congress must choose, by December 31 of the tax year, numbers X and Y (and maybe Z) such that the income would, if these numbers were applied to the previous year, completely cover total government expenditures plus 10% of the debt. This means everything -- military expenditures, welfare benefits (including for veterans), interest on the debt, Medicaid, and so on. It should probably include a provision in case of emergency, but it should be extremely difficult to do (say, the approval of 3/5 both houses of Congress) and limited in duration (for only that tax year).

The whole effect, I hope, would be to make paying taxes easier. It would also force people to recognize just how much spending is going on and how much of it they're paying for.